Thursday, 6 September 2012

IBM's mainframes: Old dog, new tricks | The Economist

TO THE less technologically inclined, IBM’s new crop of mainframe computers (pictured) looks like a large stylish refrigerator rather than a piece of tech wizardry. Yet the mainframe is one of the IT industry’s most enduring inventions. Without knowing it, most consumers have probably used a mainframe computer. From credit card payments to monitoring exports, the mainframe provides what is termed “mission critical” processing.

The mainframe has had its fair share of ups and downs. In the 1980s businesses started to desert “big iron” in droves. The idea that bundles of hardware and software in a metal shed could compete with the new client/server model of computing struck many geeks as farfetched. The mainframe seemed Triassic compared to minicomputers and the PC.

With a tip of the hat to the dinosaur naysayers, IBM code-named their then current series of mainframe computers T-Rex. But as ever more data was generated with the rise of the internet, the mainframe found itself back in demand. In particular it was the need for secure online transactions and e-payments that provided a lifeline.

Still, the mainframe story is one of inertia as much as innovation. Large banks, for instance, are stuck with mainframes for their core systems because of high switching costs. “How would you even go about reorganising such a system,” wonders Rakesh Kumar of Gartner, a market-research firm.

In a way, IBM’s mainframes are now more dominant than in the early 1970s when the firm’s quasi-monopoly got it into antitrust trouble (IBM rejects that interpretation, saying that there is plenty of competition from powerful computers made by the likes of HP and Oracle today). The European Commission in Brussels recently ended a new antitrust investigation after minor concessions from IBM.

A captive market in the developed world and growing sales abroad have allowed IBM to invest heavily in the new mainframe, dubbed zEnterprise EC12 (or “Z12”, for short). It cost more than $1 billion to develop, according to Doug Balog, who runs IBM's mainframe business.

The new mainframe, he says, is 25% faster than its predecessor, the Z196. The new model also provides what is called “embedded analytics”: it can sift in real-time through huge amounts of data to detect, for instance, fraudulent activity in mid transaction.

For all its new features, the mainframe remains popular for its reliability and security. “The Z12 is encrypted from the chip to the software,” emphasises Mr Balog. This is crucial for companies which have to process masses of sensitive data. “If you’re a bank or a credit card firm, you’ve not really got any other option,” says Mr Kumar.

Given such credentials, it does not come as a surprise that the machine isn’t cheap. But the price—which starts at $1m and often goes much higher—still leads to dropped jaws. That however, says IBM, is a small price to pay relative to Z12’s benefits. The firm reckons it saved Eurocontrol, an air traffic control firm, around 50% in software costs.

At any rate, the mainframe is a hugely profitable business for IBM. Only around 4% of the firm’s revenues come from mainframe sales. But once additional hardware, storage, software and all kinds of related services have been factored in, the mainframe accounts for a quarter of IBM’s revenue and nearly half of profits, estimates Toni Sacconaghi of Berstein Research.

China is the main reason why these numbers have improved recently. Online banking transactions have trebled in the country since 2009, says IBM, compelling companies like the Bank of China to invest in mainframes. The machines have also proven popular in other emerging economies.

Like IBM itself, the mainframe has stayed relevant by adapting—whereas the PC, its supped slayer, has stayed pretty much the same and is now being pushed aside. “PCs are a mature platform. More and more data are now accessed via smartphones and tablets,” says Mr Kumar. Who would have thought that in 1996?